How I evaluate pre-construction opportunities
April 6th, 2006 by KenricI know that pre-construction is looked down upon by real investors, but who cares if I can make some money. I think I have an advantage when I do pre-construction because I’m willing to move and live in any house I buy. By doing so, I can get into communities that have banned investors and I can buy based on my percieved appreciation rather than cashflow.
I see one good opportunity right now in Peoria, AZ. Pulte’s development at West Wing mountain phase 2 is coming to a close. They have 5-6 houses left to sell. These houses will probably be done one year from now. Out of these houses, there is one in particular that I find very attractive. The model is the Primrose, which is a 4100 sf home and they are asking $542,000 for it. You figure you add $50k in upgrades and you have a 4100sf house for $600,000. You are paying $146/sf.
Now if you look in the subdivision, houses are asking about $200-250/sf. I don’t have MLS access, but I was able to get some comps from www.aznb.com.
March 2006 solds
$375k for 2052 sf = $182/sf
$505k for 2400 sf = $210/sf
$830k for 3389 sf = $244/sf
Feb 2006 solds
$350k for 1628 sf = $214/sf
$655k for 3159 sf = $207/sf
$660k for 2998 sf = $220/sf
As you can see, $200/sf seems about right for this subdivision. So could we really say that this new construction is worth 4100sf X $200 = $820,000? Probably not, because as homes get larger the $/sf usually decreases. However, in my estimation this house is worth about $725,000-750,000 today. If this house was on the market TODAY and available for move in at $600k it would blow away the rest of the $600k houses on the market.
And the one last thing to remember is that you may get 1 year of appreciation built in. But I think that you have bought below market in this case and appreciation would be a bonus.
Finally, you have to remember that Phoenix is cooling down. Maybe this subdivision will go down to $180 or $150/sf, nobody knows. But at $150/sf you are breaking even! The best thing is that you only need $10,000 to secure this house for one year. Is a potential $150,000-$200,000 gain worth a $10,000 risk? I think so.
Posted in Real Estate | 3 Comments »
Stumble it!
The market has softened…
Lots of investors are pulling out of the Pheonix/Chandler market.
You have been lucky in the past just be careful not to get burned!
What is the current D.O.M.?
Cheers, Kat
By Anonymous on Apr 7, 2006
How do you feel about the market in Scottsdale?
By Anonymous on Apr 7, 2006
Hi Kat, thanks for your comments. The market is pretty slow here. I think average DOM is around 100.
I look at each subdivision on a case by case basis. Some are very expensive and priced same as the market currently and some are priced below.
The Pulte subdivision is priced under the market. If I didn’t already have a house in that subdivision I would probably go for it.
I can’t really say about Scottsdale in general. I know that the Phoenix area is slow and I personally haven’t seen any appreciation this year. Prices are the same or sometimes lower than the tail end of last year. I personally sold 2 condos in Scottsdale last month and got full price on them after 100 DOM.
By monarchcrest on Apr 7, 2006